This year's bank failures in the United States have put the domestic banking industry under tremendous stress. Despite assurances by the Federal regulators and top executives of large financial institutions, depositors and investors remain jittery about the stability of the banks.
Amid the uncertainty surrounding the U.S. banks, financial investors have been buying Frankfurt am Main, Germany-based Commerzbank AG (CRZBY). Investors’ interest in CRZBY is evident from the stock’s price performance. CRZBY’s stock has gained 53.2% in price over the past nine months and 49% over the past year to close the last trading session at $10.74.
In this piece, I have discussed why it could be prudent to buy CRZBY.
Concerns over the financial stability of regional banks led depositors to pull out their money and park it the high interest paying money market funds or the ‘too big to fail banks.’ For the week ended May 17, 2023, total money market fund assets increased by $13.56 billion to $5.34 trillion.
With the U.S. banking system facing several challenges, foreign banking stocks look attractive from an investment standpoint. CRZBY reported a solid start to fiscal 2023, nearly doubling its net profit.
CRZBY’s Chairman of the Board of Managing Directors, Manfred Knof, said, “Commerzbank is in good shape. Our transformation is making good progress and is increasingly paying off. We had a very good start to 2023, continuing the strong performance of the previous year.”
The European Central Bank (ECB) and the Finance Agency approved CRZBY’s first share buyback program of €122 million. The company intends to declare a dividend of 20 cents per share on May 31, 2023. Moreover, in line with its capital return policy, Commerzbank will distribute 30% of last year’s net profit after the deduction of AT 1 coupon payments.
“The interest rate development continues to give us a tailwind, and the fee business has delivered a good result. We are fully on track to meet our targets for 2023, including a payout ratio of 50%,” Knof added.
For fiscal 2023, CRZBY expects its net interest income to come to €7 billion. It expects to achieve the target of 400 branches this year. Its CET 1 ratio is expected to be around 14%, while its net commission income is expected to be around last year’s level.
CRZBY’s CFO, Bettina Orlopp, stated, “We are steering the bank through a very dynamic environment with clear priorities. In this respect, the high quality of our loan book and our conservative risk management are paying off. We are benefiting from the fact that we have – thanks to our considerable transformation progress – significantly improved profitability and substantially increased our resilience.”
Here’s what could influence CRZBY’s stock in the upcoming months:
Robust Financials
For the fiscal first quarter ended March 31, 2023, CRZBY’s net interest income increased 39% year-over-year to €1.95 billion ($2.11 billion). Its total expenses declined 3.4% over the prior-year quarter to €1.72 billion ($1.86 billion). Its operating result rose 61% year-over-year to €875 million ($945.13 million).
The company’s net profit after tax and minority interests increased 94.6% year-over-year to €580 million ($626.49 million). Also, its Common Equity Tier 1 ratio (CET 1 ratio) came in at 14.2%, compared to 13.5% in the year-ago period.
Favorable Analyst Estimates
Analysts expect CRZBY’s revenue for fiscal 2023 to increase 11.8% year-over-year to $11.51 billion. Its revenue for the quarter ending June 30, 2023, is expected to increase 21.3% year-over-year to $2.99 billion.
Discounted Valuation
In terms of trailing-12-month Price/Book, CRZBY’s 0.40x is 58.5% lower than the 0.97x industry average. Its 1.30x forward Price/Sales is 35.2% lower than the 2.01x industry average. Likewise, its 0.03x trailing-12-month GAAP PEG is 91.3% lower than the 0.39x industry average.
Solid Historical Growth
CRZBY’s revenue grew at a CAGR of 5.6% over the past three years. Its net income grew at a CAGR of 115.3% over the past three years. In addition, its EPS grew at a CAGR of 107% in the same time frame.
POWR Ratings Show Promise
CRZBY has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CRZBY has an A grade for Growth, consistent with its historical growth.
CRZBY is ranked #14 out of 88 stocks in the Foreign Banks industry. Click here to access CRZBY’s ratings for Value, Momentum, Stability, Sentiment, and Quality.
Bottom Line
CRZBY aims to maintain its momentum by capitalizing on the high-interest rate environment. The company’s share buyback will create value for the shareholders, and it reiterated that it would maintain a payout ratio of 50%. It also expects its net interest income to come to around €7 billion, compared to €6.5 billion predicted at the end of fiscal 2022.
Given its robust financials, favorable analyst estimates, solid historical growth, and discounted valuation, it could be wise to buy the stock now.
How does Commerzbank AG (CRZBY) Stack Up Against Its Peers?
CRZBY has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Foreign Banks industry with A (Strong Buy) or B (Buy) ratings: Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), KB Financial Group Inc. (KB), and Intesa Sanpaolo S.p.A. (ISNPY).
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CRZBY shares were trading at $10.60 per share on Friday afternoon, down $0.14 (-1.30%). Year-to-date, CRZBY has gained 13.37%, versus a 9.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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